November 13, 2016

PROPOSED tax changes under President-elect Trump

With the close of the recent election, we are providing a summary of President-elect Donald Trump’s most recently proposed tax changes . Please be aware that the provisions below have not yet been enacted and that final tax provisions may differ substantially from those outlined below.

Individual Taxation

The following are proposed adjustments for individual income tax filers:

  • Reduction of the number of individual income tax brackets from seven (ranging from 10% to 39.6%) to three (12%, 25%, and 33%). The 33% marginal rate would apply to those individuals with income in excess of $112,500 for single filers and $250,000 for those filing jointly.
  • Increase in standard deduction amounts from $6,350 for single filers and $12,700 for joint filers to $15,000 for single filers and $30,000 for joint filers. President-elect Trump’s tax plan also calls for the elimination of personal exemptions.
  • Limit on the amount of itemized deductions to $100,000 for single filers and $200,000 for joint filers.
  • Elimination of the Head of Household filing status generally used by single taxpayers who have qualified dependents.
  • Elimination of the Alternative Minimum Tax, the parallel tax calculation created in 1969 that disallows certain deductions and taxes ordinary income at flat tax rates.

Capital Gains and Dividends

There are currently no proposed changes to the capital gains and qualified dividend rates.

Carried Interest

President-elect Trump has proposed taxing carried interest generally earned by venture capitalists, hedge fund managers, and private equity principals at ordinary income rates.

Affordable Care Act

President-elect Trump has indicated in his 100-day action plan that he will prioritize repealing the Affordable Care Acts. With this repeal, the 3.8% surtax on net investment income will also likely be repealed. (Net Investment Income Tax)

Estate and Gift Taxation

President-elect Trump has proposed the repeal of estate and gift tax. Currently, individuals are allowed to transfer either during their lifetimes or at death $5.490 million for unmarried individuals and $10.980 million for married individuals to their loved ones without incurring gift or estate taxes.

Under Mr. Trumps proposed plan, not all estates will not be completely tax free. For estates over $10 million, President-elect Trump has proposed taxing the appreciation inherent in the assets when the beneficiary sells the assets.

Business Taxation

The following are proposed adjustments for business income tax filers:

  • Lower the corporate tax rate to 15 percent and eliminate the corporate alternative minimum tax. Currently, the top corporate income tax rate is 35 percent.
  • For pass-through entities (sole-proprietorships, partnership, and S-corporations), enacting the ability to elect to tax earnings retained in the business at 15 percent.
  • Elimination of most business deductions except research and development costs.
  • Increase the ability to deduct fixed assets purchases immediately (as opposed to depreciating them under a number of years) under Section 179 from $500,000 to $1,000,000.
  • Instituting a means to repatriate overseas corporate profits at a reduced tax rate.

Summary

Although it is unclear whether or not the above proposals will actually be enacted, with Republican control of the House and Senate, it is likely that comprehensive tax reform will occur within the next two years. Your advisors at Realize CPA will be closely monitoring upcoming legislation for potential tax-planning opportunities. Keep an eye out for our annual list of year-end tax planning ideas, which are forthcoming. As always, we are available to discuss any questions you may have regarding your financial well-being.